Two Economists Debate The Dollar Situation
The Wall Street Journal gives us a nice debate between Professors Menzie Chinn and Kash Mansori about the yuan/dollar and current account situation.
[Thanks to jhu.edu/~jhumag for the image.]
Mansori's last sentence sums up the gist of the dialogue:
'The U.S. current account balance will fall, and the dollar will fall along with it. But because this situation is so novel, the questions "how?" and "when?" just don't have any easy answers.'
This statement, also by Mansori, gives a concise description of the problem:
'Never before has any country been able to run such a large current account deficit for so long. Never before has any country borrowed such a massive amount of money from the rest of the world in such a short period of time. Never before has the world changed its preference for international assets (particularly U.S. assets) so rapidly. Never before have global central banks accumulated such staggering quantities of foreign exchange reserves. Never before has our domestic financial system been so dependent on international capital for its low interest rates, and by extension, been so vulnerable to events in the foreign exchange markets. And never before has the country most at risk for a painful exchange rate adjustment -- been the owner of world's dominant reserve currency.'
The debate makes for a good read, even though they don't say much more than I already did here. Nothing has changed since my post, except that the US economy is holding up pretty well considering the housing smack it's getting and the mixed signals coming out of the data. Hot-cold, hot-cold, hot-cold. The Fed keeps talking inflation pressures to keep us from assuming they will lower rates anytime soon; but they don't want to raise rates for fear of causing consumer, producer and investor confidence to drop.
We just have to be patient to see where all of this will go, don't we? T'ain't easy.
Did I ever tell you about gold as a store of value? (Rhetorical question, for those who haven't read many of my posts.) Because while the dollar dithers, gold is quietly coming into its own.
Once more for the back row:
You can take gold out of the standard, but you can't take the standard out of gold.
[Thanks to jhu.edu/~jhumag for the image.]
Mansori's last sentence sums up the gist of the dialogue:
'The U.S. current account balance will fall, and the dollar will fall along with it. But because this situation is so novel, the questions "how?" and "when?" just don't have any easy answers.'
This statement, also by Mansori, gives a concise description of the problem:
'Never before has any country been able to run such a large current account deficit for so long. Never before has any country borrowed such a massive amount of money from the rest of the world in such a short period of time. Never before has the world changed its preference for international assets (particularly U.S. assets) so rapidly. Never before have global central banks accumulated such staggering quantities of foreign exchange reserves. Never before has our domestic financial system been so dependent on international capital for its low interest rates, and by extension, been so vulnerable to events in the foreign exchange markets. And never before has the country most at risk for a painful exchange rate adjustment -- been the owner of world's dominant reserve currency.'
The debate makes for a good read, even though they don't say much more than I already did here. Nothing has changed since my post, except that the US economy is holding up pretty well considering the housing smack it's getting and the mixed signals coming out of the data. Hot-cold, hot-cold, hot-cold. The Fed keeps talking inflation pressures to keep us from assuming they will lower rates anytime soon; but they don't want to raise rates for fear of causing consumer, producer and investor confidence to drop.
We just have to be patient to see where all of this will go, don't we? T'ain't easy.
Did I ever tell you about gold as a store of value? (Rhetorical question, for those who haven't read many of my posts.) Because while the dollar dithers, gold is quietly coming into its own.
Once more for the back row:
You can take gold out of the standard, but you can't take the standard out of gold.
posted by Katy Delay at 6:19 PM
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